Supply & Demand Equilibrium
Drag either curve and watch the market re-settle — a new equilibrium price and quantity, with the consumer and producer surplus triangles resizing in real time.
Almost every diagram in A-Level economics starts here. Supply and demand explains where a price comes from, why it moves, and who gains from a trade. Once you can read the crossing point — and see the surplus triangles resize as the curves shift — the rest of microeconomics is just this idea, reused.
Where does a price come from?
A demand curve slopes down: as price falls, buyers want more. A supply curve slopes up: as price rises, sellers offer more. They pull in opposite directions, and the market settles where they agree — the one price at which the quantity buyers want to buy exactly equals the quantity sellers want to sell.
Price isn’t set by buyers or sellers alone. It’s the number that clears the market — where the two plans finally match.
Find the equilibrium
Drag either curve (or use the sliders) and watch the equilibrium point slide along. The shaded triangles are the gains from trade — consumer surplus above the price, producer surplus below it. Notice how a shift in one curve moves both the equilibrium price and quantity.
Text description ↓Hide text description ↑
An interactive supply-and-demand diagram with price on the vertical axis and quantity on the horizontal axis. A downward-sloping demand curve and an upward-sloping supply curve cross at the equilibrium, which is marked with a point and dashed lines to each axis giving the equilibrium price (P*) and quantity (Q*). The area between the demand curve and the price line (up to Q*) is consumer surplus; the area between the price line and the supply curve is producer surplus. Sliders shift each curve left or right, moving the equilibrium and resizing the two surplus triangles.
Shifts vs movements along the curve
This is the distinction examiners test most, and the one students most often blur.
- A movement along a curve is caused onlyby a change in the good’s own price. You slide from one point on the same curve to another.
- A shift of the whole curve is caused by any other factor. The relationship between price and quantity itself has changed.
Consumer and producer surplus
Consumer surplus is the bonus buyers get: the gap between what they were willing to pay and what they actually paid, summed over every unit — the triangle under the demand curve and above the price. Producer surplusis the mirror image for sellers: the triangle above the supply curve and below the price. Together they measure the total welfare the market creates, and you’ll use them again to shade the deadweight loss from taxes, monopoly and market failure.
Worked example
Suppose a heatwave hits and everyone wants ice cream. Tastes have shifted, so the demand curve moves right. At the old price there is now a shortage: quantity demanded exceeds quantity supplied.
That shortage bids the price up. As price rises, firms move along the supply curve and offer more, while some buyers drop out along the new demand curve, until a new equilibrium is reached at a higher price and higher quantity. Try reproducing this by shifting demand right in the diagram above.
Common mistakes
Your turn
A new technology halves the cost of making solar panels. What happens to the equilibrium price and quantity?
Show the answer ↓Hide the answer ↑
Lower costs shift supply to the right. There is a surplus at the old price, so price falls; as it falls, quantity demanded rises along the demand curve. New equilibrium: lower price, higher quantity.
Frequently asked questions
What is market equilibrium?+
What is the difference between a shift in demand and a movement along the demand curve?+
What are consumer and producer surplus?+
What happens to price and quantity if demand rises?+
The ScholarsGate Economics Team
Oxbridge & Russell Group economics tutors
Written and reviewed by ScholarsGate tutors who teach A-Level and undergraduate economics. Every explainer is checked against the AQA, Edexcel, OCR and Eduqas specifications.
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